Capital Market Development in Cambodia

Transcription

1 Capital Market Development in Cambodia Hanoi, 1 st March 2007 Dr. Hang Chuon Naron Secretary General Ministry of Economy and Finance

2 Contents Overview of Financial Market Present financial system in Cambodia Banking Sector Insurance Sector Fixed Income Securities and equity Capital Market Development in Cambodia guided by: - Financial Sector Blueprint (FSB ) 2010) approved on August 24 th, Financial Sector Development Strategy (Approved by the Royal Government of Cambodia on February 9 th, 2007) Develop 4 I s for Capital Market Infrastructure investor Issuers Intermediaries Way forward

3 Overview of Financial Market

4 Present financial system in Cambodia Players in Financial Sector: Dominance of banking system: The central bank, that is the National Bank of Cambodia with its 18 provincial branches, 15 commercial banks, 4 specialized bank, A decentralized banking system, consisting of MFIs and a number of NGOs operating in the rural finance. 4 Insurance Co., No inter-bank/money market No equity & securities market, no securities company Active foreign exchange markets due to high degree of dollarisation (90% of banks transactions in US$, large volume of USD cash in circulation).

5 Banking Sector Banks are very liquid (loans to deposits ratio 65%), but despite large resources they are still reluctant to take lending risks Banks resources are mainly short-term: term: in fact almost all deposits and loans are short-term, term, less than 1 year, and in USD. Credit information sharing system among banks in place. But a series of reforms are under ways to promote intermediation : Legal basis & basic regulatory framework for banking system established. Continuing development of bank supervision capacity. Enhancing Payment system, Riel and USD clearing houses established. Compulsory implementation of standard accounting principles by companies Banks are potential investors in securities markets once they are established

6 Insurance Sector -Growth Premium in 1999 is 2,445,000 USD, in 2005 is 10,848,000 USD. Growth rate 4.4 time. Note: Figures include premiums by Indochine Insurance, which was closed down in Oct 2004 due to incompliance with the Insurance Law. [Source] MEF Gross Premiums by Type of Insurance Motor Fire Marine Engineering Workman Compensation Personal Accident Health Miscellaneous 12,000,000 10,000,000 8,000,000 USD 6,000,000 4,000,000 2,000,

7 Fixed Income Securities and Equity T-bill, recap. bond and CD are only fixed income securities in Cambodia so far. No equity market yet. T-Bill Recapitalization Bond Certificate of Deposits (CD) Issuer MEF (through NBC) MEF Banks Investor Banks (mostly, state owned banks) Recapitalized institutions (FTB, Caminco, CambodiaRe.) Banks Outstanding volume None (end of June 2006) Used to issue 49.9 Billions in 2005 KHR billion (Used to be 90.9 Billions Currency Riel Riel Maturity 91 days 2 or 3 years Coupon rate Around 6% p.a. 3% p.a. Issuing method Discount auction (earmarked only for recapitalization purpose) Transferability No No Yes

8 Financial Sector Blueprint Phase1: Develop legal framework (Securities Law, company law, bankruptcy law, secured transaction law, civil code, commercial court law, accounting law, accounting standard, Listing rules, and etc.) - Feasibility for the creation of Stock Exchange - Capacity building Phase2: Creation of Securities and Exchange Regulator - Creation of Stock Exchange, depository and clearance and settlement ent facility. - Promote the issuance of government securities - Continuing capacity building for market participants Phase3: Revise prudential regulation to be consistent with IOSCO - Promote non-government securities market including the issuance and trading. - Continuing capacity building for market participants

9 Financial Sector Development Strategy (capital market) Immediate Priorities ( ) 2009) Intermediate and Medium term priorities ( ) 2012) Long Term Goals ( ) 2015)

10 Financial Sector Development Strategy (capital market) Cont.. Immediate Priorities ( ) 2009) - Enact Bankruptcy Law - Develop progressive company framework with graduated requirement from small to listed company. - Investor education and human resource development - Put in place interbank market - Enact law on non-government securities (Enforcement framework for fraud and central electronic securities depository) - Continuing improvement of accounting/auditing capacity.

11 Financial Sector Development Strategy (capital market) Cont.. Intermediate and Medium term priorities ( ) 2012) - Implement progressive, graduated framework for companies - Securities depository for all public company - Implementation of financial enforcement and regulation - Continuing development of financial regulation - Preparation for Securities Exchange: IPOs IPOs,, Securities intermediaries, consideration of investor compensation scheme.

12 Financial Sector Development Strategy (capital market) Cont.. Long Term Goals ( ) 2015)- Development of: - Investment funds - Pensions/Provident fund scheme - Securitization framework/institution - Derivatives

13 Hurdles or challenges to Develop Capital Market Political Issues Economic Issues Low governance standards Introduce new instruments Develop best practices in market place Establish real-time market infrastructure Education for market participants Pyramid Scheme (Progressively Develop) Share Registry Data transfer

14 Develop 4i s s for Capital Market

15 Develop 4 I s toward Capital Market Existence in Cambodia Among 4 I s,, Only Infrastructure under control of the government. The other 3I s s are beyond the control of Gov nt nt. The way to drag the 3I s s to the hand of Gov t is to put more effort on education.

16 Infrastructure: The Prospective Regulatory Framework Draft laws on the issuance and trading of non-government securities and on gov t securities. Gov t Securities Law (Effective) Non-gov gov t Securities Law (draft) Regulator MEF/SEC (secondar y Mkt) SEC Regulated Institutions Syndicate/ Securities Firms Securities firms/banks with securities license Stipulated Securities Services Gov t Securities Business non-gov gov t securities business Stipulated Products Gov t sec. T-bills, T.bond..e ct Non- gov t sec. Equity, Debt, Derivativ e, others Banking Law (effective) NBC Banks Universal banking securities in general (with respect securities license)

17 Infrastructure: Prospective Regulator and Service Providers Service providers: : Securities firms and bank (Draft law on the issuance and trading of non-government securities) Primary market Secondary market Gov t securities Non-gov gov t securities Gov t securities Non-gov gov t securities Regulator MEF SEC SEC/(MEF) SEC Securitie s Service Providers Banks Securities firms Yes Yes Yes, but with license Yes SEC/ (MEF) Yes SEC Yes

18 Infrastructure: Roadmap for Single Regulator The would-be setup: : Single regulator for securities service, at first. Probably a consolidated single regulator for all financial services, later on. Current laws and draft laws and its sub-decree: Banking service, Securities Service and Insurance service are under the supervision of different regulators: Securities service (gov( gov t securities and non-gov gov t securities) provided by banks and securities firm will be supervised regulated by SEC. Banking service is regulated by NBC Insurance service is regulated by MEF The final set-up, securities service and banking service and insurance service will probably be regulated and supervised by a consolidated regulator (~FSA)(

19 Develop Investor base: Institutional Investors Individual investors (Most sleeping money in hand) Banks (Universal banking) Insurance companies Investment fund Social security funds: In Cambodia, MEF and Ministry of Labor plan to launch social insurances including pension and to establish National Social Security Fund (NSSF: Law on social security, 2002) MEF and Ministry of Labor are suggested to pay much attention onto the design of pension systems and the investment instruments of NSSF.. It will require a full range of examinations on policy design, actuary, fund management, management information system (MIS), etc.

20 Potential issuers of gov t securities and Corporate Securities Immediately after the draft law on the issuance and trading of nonn on-gov t securities is adopted. The criteria approval for corporate bond will be drafted d for issuance of corp. bond. SOEs and Authority could issues gov t securities. In Cambodia, there are a lot of public and private entities that t are involved in infrastructure and public utilities businesses, that are in the need of huge investments and mid- and long-term financings so they need to mobilize fund. Possible Potential Issuers Category Sihanoukville Port Authority (SPA) Apsara Authority Electricite du Cambodge (EDC) Banks (and NBFIs) Conglomerates (especially, public utilities or energy businesses) Concessionaires (telephone, airport, etc.) Authority and SOE SOE Banks Local Company FDI

21 Developing in Securities Intermediaries Current: MEF and NBC play the role of intermediaries for T-bills. T There is no securities intermediaries in Cambodia. Future: Banks, insurance company, pension fund etc. would be securities intermediaries (more oriented training for them)

22 Way forward

23 Way forward to develop the Capital Market in Cam. Remove obstacles to capital market development (Pyramid Scheme and Share registry) Cash and Debt Management has been improved (PFM Reform Program) Interbank market will be developed (Law on negotiable instrument and payment transaction was adopted in 2005) Design a training master plan for 3i s. Launch education campaign for 3i s Continue to develop necessary regulations and policy for bond market Capacity building for market participants and securities regulators

24 Q & A

25 Thank You